Treasury proposes 5% spending cut to tame deficit

Minister of Finance Bezalel Smotrich credit: Danny Shem Tov Knesset Spokesperson
Minister of Finance Bezalel Smotrich credit: Danny Shem Tov Knesset Spokesperson

The across-the-board cut in ministries' budgets for 2025 is one of a series of measures aimed at restricting the fiscal deficit to 3.8% of GDP next year.

Sources inform "Globes" that at a meeting at the Ministry of Finance headed by Minister of Finance yesterday, part of a series of discussions on the 2025 state budget, the main proposal raised was for a 5% across-the-board cut in the budgets of government ministries, amounting to NIS 3.5 billion in total.

This is one of several measure proposed by the ministry’s Budgets Division designed bring the expected fiscal deficit for next year down to 3.8% of GDP. The Budgets Division has formulated a bank of possible adjustments amounting to a total of NIS 50 billion.

Among the other proposals raised: a pay cut for senior managers in the public sector; postponement of the next instalment of the pay rise in the civil service; a cut of NIS 2-4 billion in allocations to coalition parties; abolition of unnecessary government ministries; and other efficiency measures in the public service. It was also proposed that the VAT rate should be raised to 19% (it is already due to rise from its current rate of 17% to 18%), but such a step will probably be kept in reserve in case the exchanges of fire on Israel’s northern border escalate into all-out war, requiring immediate sources of finance.

According to the Ministry of Finance’s calculations, without adjustments, the fiscal deficit is liable to reach 6.2% of GDP in 2025, given additional spending on defense of NIS 20 billion. To reach the 3.8% target, the deficit will have to be trimmed by 2.4% of GDP, that is, by NIS 50 billion.

The idea was also raised of another attempt to cut the tax benefit on advanced training funds, which are in effect a tax-free savings scheme, despite the political difficulties of such a step vis-à-vis the Histadrut (General Federation of Labor in Israel), which has blocked such attempts in the past. To reconcile the Histadrut to such a measure, the government will first of all have to demonstrate a commitment to making cuts within itself.

Within the next few days, Smotrich is expected to decide on the deficit target, after internal consultations and perhaps consultations with Prime Minister Benjamin Netanyahu as well. The Ministry of Finance will then carry out the staff work to select the adjustment measures that will be introduced into the budget, in coordination with the other government ministries, to plan the specific spending cuts at each of them.

Published by Globes, Israel business news - en.globes.co.il - on June 20, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Minister of Finance Bezalel Smotrich credit: Danny Shem Tov Knesset Spokesperson
Minister of Finance Bezalel Smotrich credit: Danny Shem Tov Knesset Spokesperson
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